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KLIMEK: New securities commissioner faces challenges

July 11, 2015

KlimekSecretary of State Connie Lawson recently appointed Alex Glass as Indiana’s new securities commissioner. Glass most recently served as chief deputy securities commissioner. The appointment of a commissioner with knowledge of securities law in general and the Securities Division in particular is rare, to say the least, and welcome. Glass faces many challenges as commissioner, but the flip side is opportunity.

An important problem Glass will face is that the members of the staff of the Securities Division are not paid at the same level as people with similar jobs at other state agencies. This was caused by political decisions by past secretaries of state, which I would not characterize as profiles in courage. The result is that attracting and retaining good staff is very difficult for any commissioner. Turnover of attorneys at the division is the stuff of legend. Glass will need an assist from Lawson to bring the pay of the division’s staff to a level commensurate with that of other state agencies.

For several years now, the division has fashioned itself as primarily a law enforcement agency rather than a regulatory one. This includes bringing criminal cases. It does have the effect of creating headlines. But reasonable regulation should not be sacrificed for the sake of good PR. By the time the division issues a cease-and-desist order or a criminal referral, investors’ money is gone, and frequently none of it comes back.

By dedicating more resources to examination of proposed securities offerings and applications for licensing of investment professionals (now being done through the triage abilities of one staff member), the commissioner can do a better job of keeping investors from losing money in the first place. Even within its corporate finance efforts, the division should concentrate on reasonable regulation of securities offerings, not promotion of them for political purposes.

The result of the latter is, for instance, the dud known as the crowdfunding exemption. Crowdfunding is a solution without a problem. Entrepreneurs with good ideas can raise capital from sophisticated investors through traditional private placements of securities. As far as I know, fewer than 10 filings claiming the crowdfunding exemption have been made.

Furthermore, if the division is going to build cases for purposes of referring them to the prosecutor, it needs to follow proper criminal procedure as required by the U.S. Constitution. I have spoken to several attorneys who agree that the staff’s disregard for criminal procedure is the result of arrogance, incompetence, or both.

The first thing we did as attorneys was to take the Oath of Attorneys, the first phrase of which is, “I do solemnly swear or affirm that: I will support the Constitution of the United States …” The commissioner should distribute copies of the Oath of Attorneys and the Bill of Rights at the division’s next enforcement meeting. Contempt for the U.S. Constitution does not protect citizens of Indiana; it threatens us.

The division’s approach to regulation, and its skill in carrying it out, have waxed and waned over the years. Glass, especially with support from Lawson, has a great opportunity to improve the division’s ability to carry out superior regulation that is reasonable to business interests and beneficial to Indiana investors. I am confident that he will do so.•

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Klimek is a securities lawyer in Indianapolis. Send comments on this column to ibjedit@ibj.com.

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